In October 2022, the Motley Fool surveyed 1,200 Gen Z and millennial investors to see what they were holding in their portfolios. The results were somewhat surprising. It turns out cryptocurrencies -- not stocks -- were the most-held assets among this age cohort. And younger investors showed a clear preference for holding individual stocks rather than mutual funds or exchange-traded funds (ETFs).
Within the crypto asset class, the focus seemed to be on high-risk, high-growth investments that could build wealth quickly. This typically means meme coins, bargain-priced cryptos trading for less than $1 that have the potential to skyrocket in value overnight, and momentum cryptos getting a lot of attention from social media influencers. While all of these can be a fun way to get exposure to crypto, there are likely better options for maximizing future wealth.
Bitcoin
The starting point for any crypto portfolio should be Bitcoin (BTC -2.33%). Bitcoin now accounts for 52% of the entire value of the crypto market, so as a general rule of thumb, Bitcoin should account for at least half of any crypto portfolio. Bitcoin has a long track record (at least, by crypto standards) of creating value for investors, and can be viewed as one of the few "buy and hold" cryptos.
From the perspective of Gen Z and Millennial investors, Bitcoin can serve another purpose as well: It can become part of a broader retirement investment strategy. In the Motley Fool survey, one of the key findings was that only 29% of Gen Z had a retirement account of any kind. And, in fact, they were more likely to own stock options (perhaps as the result of working for a start-up company) than they were to have a retirement account.
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Bitcoin for retirement might sound a bit strange, but a number of institutional investors are leading the way in creating financial products for retirement that feature Bitcoin. In April 2022, for example, Fidelity Investments announced that it was creating 401(k) retirement options featuring Bitcoin. Now that crypto is being recognized as an asset class of its own, it's likely that it will continue to find its way into more mainstream financial products for retirement.
Layer-1 blockchains
Investing in meme coins might be fun over the short term, but it is in no way appropriate for a long-term investment strategy. The last thing you want to happen is for your meme coin portfolio to collapse to zero on the day you're officially retiring!
So, a more practical alternative to meme coins could be Layer-1 blockchains, also known as smart contract platforms. This category includes some of the largest cryptos in the world, including Ethereum (ETH -0.89%), Solana (SOL -5.84%), Avalanche (AVAX -4.35%), and Cardano (ADA -3.10%). All of these rank among the top 10 cryptos in terms of market capitalization.
What all of them have in common is that they serve as the fundamental building blocks of the blockchain world. They are the core base layer (i.e., the Layer 1) on which all other activity takes place, including non-fungible tokens (NFTs), decentralized finance (DeFi), blockchain gaming, and Web3. As such, all of them have very vibrant ecosystems of their own. I've always thought of these Layer-1 blockchains as the crypto market's version of "conglomerates" -- they do a bit of everything, and that helps to diversify away some of the risk of holding them.
Crypto ETFs
Another key finding in the Motley Fool investment survey was that there seemed to be an aversion to mutual funds and ETFs among younger investors. They showed much more of a preference for holding individual stocks. There's nothing wrong with holding individual stocks, of course, but if you plan on holding a large set of stocks from the same industry, it's usually more cost-effective to invest in an industry ETF with a low expense ratio.
And that's why it might make sense to explore ETFs that are specifically tied to crypto and the blockchain world. One example is the Schwab Crypto Thematic ETF (STCE 1.64%), which gives investors exposure to a wide mix of companies in the blockchain and crypto market. Another is the Valkyrie Bitcoin Miners ETF (WGMI -0.80%), which invests in a mix of Bitcoin mining stocks. And, of course, there are the proposed ETFs that will only invest in a single cryptocurrency. The most significant of these will be the first-ever spot Bitcoin ETF, which could arrive in early 2024.
A smarter way to invest in crypto
As a huge proponent of cryptocurrency myself, I really can't take issue with those who prefer cryptos over stocks. And I can understand why investing in a meme coin trading for less than $0.01 could be appealing -- in the same way that playing the lottery every now and then can be exciting.
But there could be a smarter way to invest in crypto beyond just seeing what's trending on social media. As crypto goes mainstream, the same types of financial products that are popular with stock market investors -- such as 401(k) retirement accounts and ETFs -- are being applied to the crypto world. And that could mean a better, smarter approach to crypto for younger investors looking to build wealth over the long haul.
